The Law Firm Financial Index reports that profits in Q3 2024 rose 11.2% year-over-year, and profitability is at near-record highs for firms, with an increase in:

  • Productivity
  • Worked rates
  • Demand

Firms working on improving profitability can take strategic steps to improve productivity, billable hours and even time to payment. If you’re looking to maximize profitability, we recommend that you start with:

AI and Automation Opportunities

Artificial intelligence (AI) and automation are opportunities to reduce mundane tasks and improve profits. For example, Clio offers workflow automation for client intake, relieving staff to allow them to focus on other critical billable tasks.

You can also use something like Clio Duo to leverage AI for:

  • Extracting data from documents.
  • Quickly respond to clients.
  • Staying focused on important tasks by planning your day more efficiently.

Track Vendor, Tool and Other Expenditures

If you want to improve profit margins, expenses are a great place to start. Operating a Lean business requires a focus on continuous improvement while reducing waste. You can transform your firm into a lean operation by:

  • Reviewing all vendor expenses and finding ways to cut back. Can you negotiate better terms? Can you make purchases in bulk to reduce costs? Are you paying for too many software Apps you no longer use?
  • Review your tools and software subscriptions. Many firms rely on software-as-a-service solutions, but it’s easy to overlook unused products or user licenses. You may even have overlapping subscriptions and can eliminate some to reduce costs.

Every firm should create an annual budget and work on “trimming the fat” to maximize profitability and make themselves question unplanned/unbudgeted purchases.

Maximize Your Billable Time with Accurate Billing

Here is where there is so much opportunity to increase revenue and profit as lawyers currently bill about 2.6 hours a day. Increased and accurate billing maximizes profits, but it will require:

  • Immediate time tracking. The ABA found that waiting to track billable hours until the end of the week led to a 25% reduction in time.
  • Breaking down each task and itemizing each activity so that you accurately bill each task.
  • Billing for small tasks, too. Email and quick calls may seem like tasks that you shouldn’t bill for, but over the course of the year, it can add dozens of billable hours for each attorney.
  • Training your staff on what should and shouldn’t be billable time.

Your law practice management software should have tools built into to help you capture more time efficiently and accurately.

Consider Alternative Payment Structures

Hourly billables is a common payment structure, but it’s not the only one that firms use. You can improve profitability and better cater to some clients by offering:

  • Flat-fee payment for certain tasks, such as $1,000 for a basic will or $500 for business registration. If you can optimize these tasks, you can maximize profitability even further while earning more than your hourly rate. Here is where AI steps in to help with automation.
  • Phased billing for legal issues, such as divorce, where you may charge for the discovery, pre-trial phase and other phases separately.
  • Subscription services are another option that empowers you by signing on clients who can use your services monthly while adding steady revenue to your firm.

Alternative fee arrangements add to your firm’s profitability and may fit into prospective client budgets better than hourly or other forms of billing.

We have an entire article on alternative payment structures you may want to consider.

Make Your Billing and Payment Efficient

Efficient billing and payment processes will help your firm get paid faster and drive profitability. To optimize your systems:

  • Send out invoices immediately or set up auto invoicing if available
  • Offer clients multiple payment options, including online payments
  • Set up auto reminders for past-due invoices

Simple modifications to your current billing and payment processes can make a world of difference in improving your cash flow and profitability.

Review Processes to Free Up Your Time

Creating and implementing processes helps make your firm more efficient, but these processes shouldn’t be set in stone. They should be reviewed regularly to ensure they’re still relevant and helping drive profitability.

When reviewing your processes, consider:

  • Removing ones that are redundant or irrelevant
  • Automating and streamlining repetitive tasks
  • Delegating non-core tasks

Removing or tweaking processes that are no longer serving your firm or driving profitability can have an immediate impact.

Continue Exploring New Opportunities

Technology is evolving rapidly, especially with the rise of artificial intelligence. Explore new opportunities to:

  • Offload tasks to free up time.
  • Automate or improve processes.
  • Test new software to see if it can improve your operations.

Small, incremental improvements will help you run a lean business that is profitable and can leverage higher free cash flow to invest in growth.

Profitability is always a work in progress. Frequent reviews of your expenses, staying on top of the latest technology and trends, and freeing up attorney time will all lead to higher firm profitability.

Contact us today to learn how we can help your firm improve its profitability.